Affluent blind to medical costs in retirement

Rob Varnon

Published 6:10 pm, Monday, May 27, 2013

Fairfield County's wealthy are more optimistic and confident about their economic future, but they're also as unprepared for the long-term costs of retirement as those at the other end of the economic scale.

Bank of America's private wealth group U.S. Trust released its annual survey of Wealth and Worth last week, and long-term health care costs appears to be a blind spot for many affluent families.

"The one thing I found surprising: 72 percent still don't have a comprehensive estate plan," said Marion Schmeelk, U.S. Trust managing director and market executive for Fairfield County.

She said many don't even have health proxies, people who are designated to make decisions regarding their health care if they become incapacitated.

It's not a problem unique to the wealthy. People dream about retirement as a time to relax and enjoy. They seem themselves traveling or pursuing the hobbies and passions that the obligations of work and raising a family stalled. Thoughts of health problems intruding on this time can be difficult to admit into this picture, Schmeelk said.

But Americans are living longer than ever, and as they age there are likely to be expensive medical issues.

Fidelity this month released a report that estimates a couple retiring at the age of 65 will need to budget about $220,000 for health care costs on average. Fidelity, like U.S. Trust, found that in general, people don't know how much of their retirement will go toward medical care. In other Fidelity surveys, half of respondents estimated health care costs for retirement would run far less than $100,000.

For the wealthy, U.S. Trust is dealing with families with at least $3 million in investable assets, the issue may be about budgeting.

"They fail to fully appreciate the costs of long-term health care," Schmeelk said, adding that U.S. Trust sits down with them and goes through their current daily expenses and budgets out what they will spend in their retirement.

Edward Deak, a Fairfield University economics professor emeritus, wasn't surprised the wealthy aren't planning for health care costs. It's human nature, he said. But he also noted for many residents who aren't as well off, their reason for not planning for big medical bills down the road is a little different.

"The ability of people to defer consumption from today to the future is very much reduced," he said.

Average weekly wages in Connecticut for most people have fallen for the last three months, he said. Many people remain focused on just paying the bills they have today.

Deak said he is interested in where people spend their money. He noted fine art prices are up, as are sales of automobiles like Ferraris. These are tangible assets that are expected, or hoped, to hold value for a long time, he noted, and Deak wonders if the wealthy are putting money here to avoid buying into the stock market.

Schmeelk said her job is to get clients to think about their future and be prepared. Besides long-term health care costs, many families have not factored in the expense of caring for aging parents when they retire, something few generations before have had to deal with.

Another trend that's emerged from the most recent economic troubles is also not being considered, U.S. Trust found. About 80 percent of respondents did not factor in any financial support that adult children might need.